American Airlines files for bankruptcy protection

American Airlines' parent company AMR filed for bankruptcy protection Tuesday, as the troubled firm tried to put its finances in order while keeping planes in the sky and passengers in seats.

"Chapter 11 reorganization is in the best interest of the company and its stakeholders," the firm said in an early-morning statement, which also announced the departure of chairman and chief executive Gerard Arpey.

The filing will allow the Texas-based carrier to slash its debt burden and restructure operations with more legal room-for-maneuver to renegotiate or cancel service and wage contracts.

"This was a difficult decision, but it is the necessary and right path for us to take -- and take now -- to become a more efficient, financially stronger, and competitive airline," said Thomas Horton, who was named as Arpey's replacement.

The airline, which serves 260 cities through a network that reaches 50 countries and territories, insisted it would continue "normal business operations."

But that claim was slapped down by some industry analysts.

"Cuts will come: They've said everything is normal for now, but the cutting will surely start soon. They'll reduce aircraft, employees and routes," said Seth Kaplan of Airline Weekly.

AA said passengers will see tickets and air mileage plans honored.

Passengers at AA's bustling Dallas-Fort Worth hub expressed confidence that the airline would pull through just like all the other US carriers which have restructured under bankruptcy protection in the past decade.

"It's a tough economy, I guess, but I just got off of a full flight -- I haven't noticed any lack of people on planes," said Evan Chenowith, who had just flown in from Tulsa, Oklahoma.

Airline workers lamented the move and vowed to fight to retain benefits.

"While we think this bankruptcy could have and should have been avoided, it does not come as a surprise," the Transport Workers Union said in a statement.

"This is likely to be a long and ugly process and our union will fight like hell to make sure that front line workers don't pay an unfair price for management's failings."

The filing could have broad repercussions for the airline sector.

Rumors had swirled for months that AMR would file for bankruptcy protection, after an unusual spike in pilot retirements, with the pilots trying to sell off their own stocks in the company.

Shares in AMR have now plunged 95 percent in the last year, selling at 32 cents a share, giving the company a market value of around $105 million.

The move will fuel speculation that American Airlines is looking for a merger in an industry that has seen a swathe of consolidation in recent years and regularly suffers from oil or other shocks.

American's long-rumored suitor and Oneworld partner International Airlines Group -- the holding company that runs British Airways and Iberia -- was quick to offer its support.

"We have a successful joint business together and believe that this will provide us with an opportunity to get stronger," IAG said in a statement.

"We have every confidence in the future of American Airlines."

Most of the best-known US airlines have filed for bankruptcy at some point since 1978, according to data from the Air Transport Association. Most have emerged from bankruptcy with the notable exception of PanAm, which collapsed in 1991.

Since the attacks of September 11, 2001, Hawaiian Airlines, United Airlines, US Airways (twice),Northwest Airlines and Delta Air Lines have all filed for Chapter 11 protection, which permits reorganization while under protection from creditors.

Jim Corridore, a noted airline analyst with S&P Capital IQ, said the move would provide a minor benefit from the sector.

"Industry capacity is likely to shrink somewhat, contributing to what we see as an already lean capacity environment," he said.

"We think the industry is likely to benefit from pent-up travel demand, higher fares and improving corporate travel."

But the filing could still have a knock-on effect across the economy.

In July, American Airlines, which with sister American Eagle has a fleet of 900 planes, said it would buy 200 Boeing 737s and 260 Airbus A320 jets, both more fuel-efficient than the aircraft it currently operates.

Airbus expressed confidence the order would not be hit.

"Like other companies that have sought Chapter 11, American Airlines has set down a plan to get back on its feet. So this should not call orders into question, especially as the company needs to renew its fleet," said one Airbus source.